Democrats would slash municipal aid, allow casino, legalize pot

House and Senate Democrats Tuesday recommended opening a new casino, legalizing marijuana and imposing deep cuts to municipal aid and public colleges and universities to balance the next two-year state budget.

And while their plan begins the process of establishing tolls in future years, it strips transportation reserves in the short term while selling 35 acres in Hartford along the elevated Interstate 84 highway to keep the state’s transportation program afloat.

The Democratic plan consolidates several departments, retains but reduces the public financing program for state elections and closes an unnamed prison, the Connecticut Juvenile Training School and the Southbury Training School.

Like Malloy, who submitted his latest budget proposal on Monday, the Democratic plan also relies on state employee unions to provide concessions worth $1.57 billion over the next two fiscal years combined.

Democrats recommended reducing income tax credits for middle-income households and for the working poor while boosting cigarette taxes by 45 cents per pack. Their plan also relies on nearly $200 million in annual fee increases.

They rejected two controversial proposals from Gov. Dannel P. Malloy: one to pass a portion of skyrocketing teacher pension costs onto cities and towns and the other to subject nonprofit hospitals’ real property to municipal taxation.

But Democrats also relies on nearly $380 million in funds swept from one-time funds and other limited resources.

“Given the current fiscal realities, our goal is to sustain Democratic priorities as best we can, such as protecting our most vulnerable residents, maintaining a quality public education system, and investing in job creation,” said Rep. Toni E. Walker, D-New Haven, House chair of the Appropriations Committee. “This takes revenues, and we have offered a number of areas where this can be accomplished, and remain open to other ideas on how best to fund the needs and priorities of our state going forward.”

“Our budget proposal reflects the reality of significantly underperforming revenues and the hard decisions that must be made while avoiding major tax increases,” said Sen. John Fonfara of Hartford, Senate Democratic chair of the Finance, Revenue, and Bonding Committee.

Democratic and Republican legislators, as well as the Malloy administration, are scrambling to revise earlier fiscal proposals in response to grim financial information Connecticut received in April.

State analysts downgraded anticipated revenues for the next two fiscal years by $1.46 billion — nearly $600 million next fiscal year and $865 million in 2018-19 — largely because of eroding income tax receipts.

That erosion dramatically increased the projected shortfall in the next two-year budget.

State finances, unless adjusted, are projected to run as much as $2.3 billion, or 12 percent, in deficit next fiscal year, and $2.8 billion, or 14 percent, in 2018-19.

Local aid faces deep, unspecified cuts

Democratic legislators, like Malloy relied heavily on reductions to municipal aid to counter much of the recent revenue erosion.

But unlike the governor, lawmakers were not as clear about which municipal grants — and which communities — would face those cuts.

The Democratic plan references about $210 million in aid reductions in each of the next two fiscal years. But while it mentions cuts of about $10 million each year to the Education Cost Sharing grant, the other $200 million in annual reductions are not spelled out.

The Democratic plan also provides no community-by-community run of municipal aid, which is particularly crucial this year. That’s because Malloy has called for lawmakers to overhaul the municipal aid system to give higher priority to Connecticut’s poorest communities.

House Majority Leader Matt Ritter, D-Hartford, declined to offer any explanation of how the $10.8 million annual cut to the state’s primary education grant would be rolled out.

“We didn’t do number runs we put out a general budget,” he said during an interview. “People need to see what would happen if we basically tried to cut our way — it has to cut towns and ECS. During the negotiations we really have to look at that and ask ourselves if that is the best way forward.”

Ritter said the budget released Tuesday does not prioritize where the $10.8 million in education cuts will go.

The majority leader added that the $200 million unspecified annual cut likely would come from a sales tax revenue-sharing program that is supposed to funnel more than $340 million cities and towns over each of the next two fiscal years.

“We’re throwing out there big general concepts and we will see where it goes from there,” said Ritter, adding however, that “It will definitely hit MRSA. So every town would be impacted in a negative way.”

State colleges, universities also face big cuts

Public colleges and universities also face very deep cuts under the Democratic plan.

The University of Connecticut, which already faced a deep cut under the budget Malloy proposed back in February, would lose another $35 million over the next two fiscal years combined under the Democratic legislators’ proposal.

And the Board of Regents of Higher Education, which oversees the state universities and community colleges, would lose another $100 million over the biennium.

Other cost-cutting moves in the Democrats budget include:

Closing another state prison;

Closing the Southbury Training School for the developmentally disabled;

Closing the Connecticut Juvenile Training School;

Consolidating the Department of Aging into the Department of Social Services;

Consolidating the Department of Housing into the Department of Economic and Community Development;

Consolidating the Department of Agriculture into the Department of Energy and Environmental Protection;

Consolidating the Office of Higher Education and the Office of Early Childhood into the Department of Education.

Marijuana sales and a third casino

Democratic legislative leaders, who’ve conceded that rank-and-file caucus members have pressed them to minimize tax hikes more vociferously than in the past, turned to many new revenue sources.

Leaders proudly touted that their plan does not boost income, sales or corporation tax rates.

“We must set a course for a sustainable budget and long-term economic growth,”said Senate Majority Leader Bob Duff D-Norwalk. “This proposal seeks to strike a proper balance by not raising state tax rates, continuing to make key investments in our innovation economy, and finding ways to responsibly deliver significant structural change and the most efficient delivery of state services.”

As a result, the latest revisions look to new establish or preserve sources of revenue that don’t stem from tax increases.

By legalizing the sale of marijuana, and licensing and taxing those transactions, the Democratic plan expects to raise $60 million next fiscal year.

The plan would authorizes one additional casino, but does not address what process Democrats would favor to create this facility.

The Mashantucket Pequot and Mohegan tribes, which operate the Foxwoods Resorts and Mohegan Sun casinos in southeastern Connecticut, are seeking authorization to open a third casino outside of tribal land in north central Connecticut.

This move is essential, they say, to mitigate the loss of patronage they expect to face when from MGM Resorts International, which is developing an $800 million casino in Springfield, Mass.

State government, which currently receives $267 million in video slot revenues from the two southeastern Connecticut casinos, as part of a sharing agreement that dates back to the early 1990s, expects to see that revenue stream drop.

Nonpartisan analysts project Connecticut will receive less than $200 million annually from this source by the 2018-19 fiscal year.

The Democrats budget assumes licensing a third casino will yield $145 million over the new biennium.

Setting up tolls, selling 35 acres in Hartford

The Democrats’ latest proposal does not count on revenue from tolls in either of the next two fiscal years. One study panel commissioned by the governor estimated it could take up to five years to get tolls fully up and running.

But the Democratic plan does direct the Department of Transportation to develop a plan to establish tolls.

In the meantime, though, the Democratic plan would put Connecticut’s financially strapped Special Transportation Fund to the test.

Democrats would strip $50 million from the transportation program’s reserves to help support spending in the General Fund.

That’s a problem given that the transportation program is expected to run in deficit this fiscal year, and then face frequent annual deficits starting in 2018-19.

Until tolls can bring in more revenue, though, the Democratic plan calls for $50 million per year more from motor vehicle-related licenses, fees and permits.

And the state also would sell 35 acres in Hartford along the viaduct, the elevated portion of I-84 that runs through the city. This is expected to provide a one-time revenue boost to the transportation fund of $45 million.

Smaller tax hikes and big fund sweeps

The Democratic plan does include some tax increases, even though it doesn’t boost income, sales or corporation tax rates.

Middle-income families would lose about $50 million per year under a proposal to restrict the $200 property tax credit within the income tax to households with dependents.

The income tax credit for the working poor would be scaled back, costing those households about $13 million annually.

Democrats also embraced Malloy’s proposal to collect $53 million to $60 million more per year through higher tobacco taxes, most of which would come by adding 45 cents per pack to the cigarette levy.

But the Democratic plan also relies heavily on more time revenues. Besides sweeping transportation reserves and selling property along I-84 in Hartford, Democrats would sweep money from several other accounts including funds for:

Public financing of state elections;

Control of greenhouse gas emissions;

Collaborative initiatives between municipalities.

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ABOUT THE AUTHOR

Keith M. Phaneuf Keith, with Jacqueline Rabe Thomas, won first prize in investigative reporting from the Education Writers Association in 2012 for a series of stories on the Board of Regents for Higher Education. The former State Capitol bureau chief for The Journal Inquirer of Manchester, Keith has spent most of 24 years as a reporter specializing in state government finances, analyzing such topics as income tax equity, waste in government and the complex funding systems behind Connecticut's transportation and social services networks. A former contributing writer to The New York Times, Keith is a graduate of and a former journalism instructor at the University of Connecticut.